The number of new home sales tallied 476 thousand from a seasonally-adjusted basis in May 2013, with a corresponding $245,400 median price. This is the greatest number of sales reported since May 2009, but less than one-third seen during the peak of the housing bubble. Most housing economists will tell you the number of new home sales could double and still be in the “typical” range.
The increase in new homes sales is a function of limited inventories of existing homes available for sale and the creation of 2.115 million net new jobs in the prior 12 months. At 1.25 to 1.5 new jobs per new dwelling unit, the 2.115 million jobs created a demand for 1.41 million to 1.692 million new dwelling units—including owner occupied and rentals. At the current 65 percent homeownership rate, then the job creation rate would support new home demand ranging from 916,500 to 1,100,000 new dwellings in the past 12 months. Total residential permits, however, in that period totaled just 826,600 – including single- and multifamily. As a result of the supply-demand miss-match, new home median prices increased 10.58 percent in the 12-months ending May.
Median new home prices, when viewed on a 12-month moving average to remove the typical noise in monthly data, are now the greatest in history, given the short-fall in construction and growing demand. Further constricting supply of new homes is the limited number of developed, ready-to-build-on lots. Since the commencement of the housing bust in 2006, there has been almost zero new residential lot developments in the country. Those supplies have dwindled since then, and in many markets, given, zoning, planning, drainage, infrastructure and environmental issues, new inventory of lots is still 18 to 24 months away.
As a result, the premium paid today for new homes, when compared to existing home prices, is the greatest since prior to 2001—and may be the largest ever. The following chart shows the difference between the 12-month moving averages of existing and new homes.
In 2002, the average median priced new home was 8.4 percent greater than the corresponding existing home. Due to the strong demand today as a result of job growth and limited inventory due to unavailability of developed lots, new homes in the past 12 months now command a 25.1 percent premium in price over existing homes.
While I do expect this premium to return somewhat to normal, the current mismatch and supply restriction says that may be one and a half to two years distant.
Jobs are everything, and they are driving a growing and robust new home market.